Cinega Gardens v. U.S.
| Decision Date | 18 September 2001 |
| Docket Number | No. 00-5104,00-5104 |
| Citation | 265 F.3d 1237 |
| Parties | (Fed. Cir. 2001) CIENEGA GARDENS, CLAREMONT VILLAGE COMMONS, COVINA WEST APARTMENTS, DEL AMO GARDENS, DEL VISTA VILLAGE, DESOTO GARDENS, INDEPENDENCE PARK APARTMENTS, KITTRIDGE GARDENS I, KITTRIDGE GARDENS II, LAS LOMAS GARDENS, OXFORD PARK, PARTHENIA TOWNHOMES, PIONEER GARDENS, PUENTE PARK APARTMENTS, RAYEN PARK APARTMENTS, RESEDA PARK APARTMENTS, ROSCOE PARK APARTMENTS, ST. ANDREWS GARDENS, SAN JOSE GARDENS, SHERMAN PARK APARTMENTS, SUNLAND PARK APARTMENTS, ARGONAUT APARTMENTS, BECK PARK APARTMENTS, BLOSSOM HILL APARTMENTS, CASA SAN PABLO, CENTRAL PARK APARTMENTS, DREHMOOR APARTMENTS, FAIRVIEW GREEN APARTMENTS, GENESSEE PARK APARTMENTS, GRACE & LAUGHTER APARTMENTS, GREEN HOTEL, HOLLYWOOD KNICKERBOCKER APARTMENTS, HOLLYWOOD PLAZA, KINGS CANYON APARTMENTS, LAWRENCE ROAD APARTMENTS, LIVERMORE GARDENS, PALO ALTO GARDENS, PICO PLAZA APARTMENTS, PLACITA GARDEN APARTMENTS, SKYLINE VIEW GARDENS, VILLA FONTANA, and VILLAGE GREEN, Plaintiffs-Appellants, v. UNITED STATES, Defendant-Appellee. DECIDED: |
| Court | U.S. Court of Appeals — Federal Circuit |
Evertt C. Johnson, Jr., Latham & Watkins, of Washington, DC, argued for plaintiffs-appellants. With him on the brief were Richard P. Bress, Leonard A. Zax, and Matthew R. Lewis.
John E. Kosloske, Senior Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for defendant-appellee. With him on the brief was David M. Cohen, Director. Of counsel on the brief were Carole W. Wilson, Associate General Counsel; Angelo Aiosa, Assistant General Counsel; and Terri L. Roman, Trial Attorney, Office of General Counsel, Department of Housing and Urban Development, of Washington, DC.
Before MICHEL, RADER, and LINN, Circuit Judges.
This is a takings case. Appellants are forty-two partnerships ("Owners") formed to develop and operate residential apartment buildings, primarily in California. Owners' claims arise from Congress' enactment of the Emergency Low Income Housing Preservation Act of 1987, Pub. L. No. 100-242, 101 Stat. 1877 (1987) (pertinent parts reprinted in 12 U.S.C. 1715l, note (1994) (Preservation of Low Income Housing) ("ELIHPA") and the Low-Income Housing Preservation and Resident Home ownership Act of 1990 (codified at 12 U.S.C. 4101-4147 (1994)) ("LIHPRHA"), both of which prohibited the prepayment of Owners' federally subsidized mortgage loans after 20 years without pre-approval from the Department of Housing and Urban Development ("HUD"). Asserting that ELIHPA and LIHPRHA abrogated their contractual rights to prepay their mortgages (and thus to convert their federally regulated housing into market-rate residences), Owners sued the United States on January 3, 1994 for breach of contract, for just compensation under the Takings Clause of the Fifth Amendment, and for allegedly unlawful administrative actions.
On March 27, 1995, the U.S. Court of Federal Claims granted summary judgment in favor of the Owners on their breach of contract claims, but denied their motion for summary judgment on their takings claims. The court dismissed their administrative law claims for lack of jurisdiction. Cienega Gardens v. United States, 33 Fed. Cl. 196 (1995). Four model plaintiffs (Sherman Park Apartments, Independence Park Apartments, St. Andrews Garden Apartments, and Pico Plaza Apartments, collectively "Model Plaintiffs") were selected for the purposes of litigating the damages trial on the breach of contract claim. The trial court awarded the Model Plaintiffs $3,061,107 and entered judgment in their favor pursuant to Fed. R. Civ. P. 54(b). Cienega Gardens v. United States, 38 Fed. Cl. 64 (1997). After the government appealed the breach of contract issue, we vacated and remanded the case, finding no privity of contract between the Owners and the United States with respect to the right to prepay the mortgages after twenty years. Cienega Gardens v. United States, 194 F.3d 1231 (Fed. Cir. 1998).
On remand, the trial court granted summary judgment in favor of the government that the Owners' takings claims were not ripe. Finding the case controlled by Greenbrier v. United States, 193 F.3d 1348 (Fed. Cir. 1999), the court ruled that the Owners were required to request permission from HUD to prepay their mortgages, and thus exhaust their administrative remedies, before their takings claims would be justiciable. Cienega Gardens v. United States, 46 Fed. Cl. 506 (2000). The Owners filed a timely notice of appeal to this court, and we heard oral argument on July 13, 2001. Because the trial court's findings during the damages trial of the breach of contract action, as well as the United States' own housing data, conclusively establish that HUD would have had no discretion under the statutory requirements of ELIHPA and LIHPRHA to permit the owners to prepay their mortgages, we conclude that it would have been futile for the Owners to file prepayment requests with HUD. Accordingly, we hold that the takings claims of the four Model Plaintiffs were ripe for review. We reverse and remand the summary judgment insofar as it rested upon unripeness for failure to exhaust administrative remedies. This case falls squarely into the futility exception. But, insofar as the summary to the government rests on rejection of the Owners' per se taking theory, we affirm.
As discussed in detail in the prior opinions of this court and the trial court in this case, the present dispute arises out of federal legislation enacted in the 1950s and 1960s to encourage private developers to construct, own, and manage housing projects for low- and moderate-income families. To implement this legislation, Congress authorized the Federal Housing Administration, and later HUD, to provide mortgage insurance to enable private lending institutions to provide low-interest mortgages to housing developers.
Typically, when a developer received a HUD-insured mortgage, the developer signed a long-term deed of trust note with a private lender. HUD would then endorse the note. In 1970-1972, the Model Plaintiffs, all HUD-approved mortgagees, each executed 40-year deed of trust notes. These deed of trust notes bore a "Rider A" agreement. Importantly, Rider A to the HUD-endorsed deed of trust notes expressly prohibited prepayment of the mortgages before 20 years from the date of endorsement, except under certain conditions which included HUD approval of the prepayment. The riders further stated that, after making payments for 20 years, owners may prepay their mortgages in full without prior HUD approval. For example, Rider A to the Sherman Park Apartments deed of trust note provided in relevant part:
The debt evidenced by this Deed of Trust may not be prepaid in whole or in part, prior to the final maturity date hereof without the prior written approval of the Federal Housing Commissioner, except a maker which is a limited distribution mortgagor may prepay without such approval after twenty (20) years from the date of final endorsement of this Deed of Trust Note by the Federal Housing Commissioner.
(emphasis added). Simultaneously with entering into the deed of trust notes, the developers entered into "regulatory agreements" with HUD, which placed certain conditions on the mortgagors. The regulatory agreements imposed restrictions on the operation of the projects, including: the income levels of tenants; the maximum rents that could be charged; and the rates of return that the developer could receive (collectively, "affordability restrictions"). These agreements, as well as the mortgage insurance provided by HUD, were to remain in effect as long as the mortgage loan remained outstanding. However, they contained no reference to the Owners' right to prepay their mortgages after 20 years.
The regulations in place in 1970 provided that participating Owners could prepay their mortgage upon the expiration of 20 years. See, e.g., 24 C.F.R. 221.524(a) (1970) (). The regulations, however, were subject to amendment, so long as the interest of the mortgagee or lender under existing mortgages or loans was not adversely affected. See 24 C.F.R. 221.749 (1970) ().
By the late 1980s, Congress had become concerned that a large number of owners might take advantage of the prepayment clauses, thus reducing the supply of low-income housing throughout the country. See S. Rep. No. 101-316 at 105 (1990), reprinted in 1990 U.S.C.C.A.N. 5763, 5867. As a result, Congress enacted two pieces of legislation. The first, ELIHPA, was enacted in 1987, prohibiting participating owners from prepaying their mortgages absent prior approval from HUD. ELIHPA 225(a), 12 U.S.C. 1715l, note. ELIHPA authorized HUD to approve a prepayment only after making written findings that the prepayment would have minimal effects on the existing tenants, the local low-income housing market in general, and the local housing market for minorities. Id. ELIHPA also authorized HUD to offer owners incentives to maintain the affordability restrictions on their properties. Id. at ELIHPA 225(b).
In 1990, Congress enacted LIHPRHA, superseding ELIHPA. LIHPRHA, like ELIHPA, authorized HUD to provide incentives to owners to maintain the affordability restrictions on their properties. See Pub. L. No. 101-625, 104 Stat. 4249, codified at 12 U.S.C. 4101-4147 (1994). LIHPRHA also prohibited participating owners from prepaying their mortgages after 20 years absent...
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